PORTFOLIO If you own more than one security, you have an investment portfolio.
You build your portfolio by buying additional stock, bonds, annuities, mutual funds, or other investments. According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes different asset classes and individual securities chosen from different segments, or subclasses, of those asset classes. That diversification is designed to take advantage of the potential for strong returns from at least some of the portfolio's investments in any economic climate.
PRICE/EARNINGS RATIO (P/E) The price-to-earnings ratio (P/E) is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share.
A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power.
REGISTERED INVESTMENT ADVISOR Investment advisers who register with the Securities and Exchange Commission (SEC) and agree to be regulated by SEC rules are known as registered investment advisers.
Only a small percentage of all investment advisers register, though being registered is often interpreted as a sign that the adviser meets a higher standard.
Registered investment advisors have a fiduciary responsibility to their clients.
RISK According to modern investment theory, the greater the risk you take in making an investment, the greater your return has the potential to be if the investment succeeds.
As a rule of thumb, if you are unwilling to take at least some investment risk, you are likely to limit your investment return. For example, if you put your money into an insured bank deposit, which protects your principal, your real rate of return is unlikely to exceed inflation over an extended period.
SECTOR A sector is a segment of the economy that shares distinctive characteristics, such as telecommunications or energy.
The performance of any single stock in a sector can be measured against the performance of the sector as a whole, showing where that stock ranks in relation to its peers.
SHAREHOLDER If you own stock in a corporation, you are a shareholder of that corporation.
STOCK Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation's earnings and assets.
Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stock provides no voting rights but usually guarantees a dividend payment.
TOTAL RETURN Total return is your annual gain or loss on an equity or debt investment.
It includes dividends or interest, plus any change in the market value of the investment. When total return is expressed as a percentage, it's figured by dividing the increase or decrease in value, plus dividends or interest, by the original purchase price.
VOLATILITY The term volatility indicates how much and how quickly the value of an investment, market, or market sector changes.
For example, because the stock prices of small, newer companies tend to rise and fall more sharply over short periods of time than stock of established, blue-chip companies, small caps are described as more volatile.
YIELD Yield is the rate of return on an investment expressed as a percent.
Yield is usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.
In the case of stocks, yield is the dividend you receive per share divided by the stock's price per share. With bonds, it is the interest divided by the price you paid. Current yield, in contrast, is the interest or dividends divided by the current market price.
You build your portfolio by buying additional stock, bonds, annuities, mutual funds, or other investments. According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes different asset classes and individual securities chosen from different segments, or subclasses, of those asset classes. That diversification is designed to take advantage of the potential for strong returns from at least some of the portfolio's investments in any economic climate.
PRICE/EARNINGS RATIO (P/E) The price-to-earnings ratio (P/E) is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share.
A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power.
REGISTERED INVESTMENT ADVISOR Investment advisers who register with the Securities and Exchange Commission (SEC) and agree to be regulated by SEC rules are known as registered investment advisers.
Only a small percentage of all investment advisers register, though being registered is often interpreted as a sign that the adviser meets a higher standard.
Registered investment advisors have a fiduciary responsibility to their clients.
RISK According to modern investment theory, the greater the risk you take in making an investment, the greater your return has the potential to be if the investment succeeds.
As a rule of thumb, if you are unwilling to take at least some investment risk, you are likely to limit your investment return. For example, if you put your money into an insured bank deposit, which protects your principal, your real rate of return is unlikely to exceed inflation over an extended period.
SECTOR A sector is a segment of the economy that shares distinctive characteristics, such as telecommunications or energy.
The performance of any single stock in a sector can be measured against the performance of the sector as a whole, showing where that stock ranks in relation to its peers.
SHAREHOLDER If you own stock in a corporation, you are a shareholder of that corporation.
STOCK Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation's earnings and assets.
Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stock provides no voting rights but usually guarantees a dividend payment.
TOTAL RETURN Total return is your annual gain or loss on an equity or debt investment.
It includes dividends or interest, plus any change in the market value of the investment. When total return is expressed as a percentage, it's figured by dividing the increase or decrease in value, plus dividends or interest, by the original purchase price.
VOLATILITY The term volatility indicates how much and how quickly the value of an investment, market, or market sector changes.
For example, because the stock prices of small, newer companies tend to rise and fall more sharply over short periods of time than stock of established, blue-chip companies, small caps are described as more volatile.
YIELD Yield is the rate of return on an investment expressed as a percent.
Yield is usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.
In the case of stocks, yield is the dividend you receive per share divided by the stock's price per share. With bonds, it is the interest divided by the price you paid. Current yield, in contrast, is the interest or dividends divided by the current market price.
